European and Chinese shares fall as oil spurs inflation worries

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European and Chinese stocks fell on Wednesday as investors worried that firmer oil prices would boost inflation and curb the outlook for global economic growth.

Europe’s region-wide Stoxx Europe 600 fell 0.6 per cent at the opening bell, following five straight days of losses. France’s Cac 40 fell 0.7 per cent and Germany’s Dax gave up 0.4 per cent. 

The declines echoed in China, where the benchmark CSI 300 fell 0.2 per cent and Hong Kong’s Hang Seng index dropped 0.1 per cent.

Investors grew cautious over inflation after oil prices jumped on Tuesday to their highest level since November 2022, after Saudi Arabia and Russia said they would extend their voluntary supply cuts until the end of the year. 

Brent crude, the international benchmark, slipped 0.4 per cent to trade at $89.64 a barrel, having surged above $90 a barrel for the first time this year earlier on Wednesday. The US equivalent West Texas Intermediate fell by the same margin to $86.35 a barrel. 

Saudi Arabia, which leads the expanded Opec+ cartel with Russia, has cut an additional 1mn barrels a day from the global market since July, in what was originally billed as a temporary measure. Russia said its 300,000 barrels a day export reduction would also stay in place until December.

As two of the world’s largest oil producers strive to boost prices, the move threatens to reignite inflation pressures globally, raising investors’ concerns over what this means for central banks’ policy tightening campaigns.

The dollar slipped 0.1 per cent against a basket of six peer currencies on Wednesday, but remained near its highest level since March when a crisis in the banking sector pushed investors towards the safe haven currency. 

“US energy independence and its net exporter status leave the dollar well-positioned for higher energy prices,” said Chris Turner, head of markets at ING. 

The purchasing managers’ index releases in both Europe and China came in below market expectations a day earlier, in a sign that weak global demand and high interest rates weighed on economic activity.

While the overwhelming majority of the market believes that the Federal Reserve will keep rates steady at its next meeting in September, fewer agree on how long it will take before the central bank begins to ease its policy. 

In government debt markets, yields on the policy sensitive two-year US treasuries slipped 0.02 percentage points to 4.95 per cent, while yields on the 10-year notes were flat at 4.26 per cent. Bond yields rise as prices fall. 

Contracts tracking Wall Street’s benchmark S&P 500 fell 0.2 per cent while those tracking the tech-focused Nasdaq 100 declined 0.3 per cent ahead of the New York opening bell.